Quadrillions and Quadrillions

What Kotlikoff does is calculate the present discounted value of predicted funding gaps in federal programs, point out that they are really, really big numbers, and declare America bankrupt. As Dean says, this is silly,
disingenuous, or both. The US economy is expected to grow a lot in the future; meanwhile, real interest rates are expected to be only slightly above growth rates. So any persistent gap between spending and revenues
as a percentage of GDP will be a huge number if converted to present values. However, the present value of expected future GDP is also immense — at least a couple of quadrillion dollars. So is the gap big
compared with the resources available to cover it? Kotlikoff gives us no way to judge.

The questions you should ask are how the fiscal path is likely to play out in reality, and what if anything we should be doing now to make the story better.

It’s true that if current policies are continued with no change, we’re highly likely to face an unsustainable fiscal gap — a gap that can’t go on forever — if we look far enough away.
Stein’s Law therefore applies: if something can’t go on forever, it will stop. Sooner or later, we will have some combination of benefits cuts and/or revenue increases.

Saying that this means that the United States is bankrupt is hyperbole; more important, it’s not helpful. What, exactly, should we be doing right now?

The answer all the deficit-panic types offer is basically that we must cut future benefits. But why, exactly, is that something that must be done immediately? If you state the supposed logic, it seems to be that to
avoid future benefit cuts, we must cut future benefits. I’ve asked for further clarification many times, and never gotten it.

You can argue that it’s better to avoid abrupt changes — to put things on a glide path to sustainability. But that’s a much weaker point than you might expect given all the cries of bankruptcy and
crisis.

And Dr. Evil-type invocations of two hundred trillion dollars serve no purpose at all, unless your real goal is to scare people into preemptively dismantling the welfare state.